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Where you live matters: Urbanisation and labour markets outcomes

Policy Paper 17

Given apartheid’s legacy of irrational spatial planning it should be unsurprising that location matters for labour market outcomes. This paper attempts to quantify this effect by introducing a new urbanisation index into standard employment regressions. Utilising a multinomial logit model, it is found that there is a positive relationship between the probability of being employed and the degree of urbanisation. For example, an individual in Johannesburg is 1,5 times more likely to be employed than a similar individual in a medium-sized town such as Harrismith, and twice as likely to have a job than someone in a small town such as Mthatha. Also, an individual is nearly 1,5 times more likely to be discouraged in Mthatha than Johannesburg. Where you live does matter and it matters a great deal. However, there are outliers. These are important for policy purposes, because these towns have managed to be successful, notwithstanding their relative economic size. Six smaller district councils stand out as successes: Carltonville, Stellenbosch, Malmesbury, Swellendam, Bronkhorstspruit and Knysna/ Plettenberg Bay. Each one of these is located on or near a national highway, has rail linkages to a metropolitan area and has a relatively well-educated or highly skilled workforce. Given the improvement in labour market outcomes that larger towns and cities offer, urbanisation is inevitable. Whilst planning for rapid urbanisation is the obvious conclusion, spatial policy must not underestimate the potential of the mid-sized towns. Improving transport infrastructure, such as rail and road, will, quite literally, bridge the divide between the two economies of the rural poor and the urban rich.

Policy Paper 17
1 May 2010
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